Hong Kong Retail Sees Strong Growth From New Entrants

Rise of Middle Class Leads to Wave of Retailer Expansion in Hong Kong and Asia Pacific

Hong Kong, December 4, 2014 – In recent years, the Asia Pacific retail market has boomed on the back of strong economic growth, rapid urbanization and the emergence of a large and prosperous middle class population. CBRE’s latest report The New Age of the Asia Pacific Retail Market reveals Hong Kong was placed second in the region, as top target market for new retail entrants, with 43 new entrants recorded, just after Japan with 48.

The report reveals Asia Pacific is now experiencing an upsurge of new retail construction to meet demand as international retailers flock to the region. Asia’s middle class is set to triple, from 525 million in 2009 to over 1.7 billion by 2020. It is forecasted that by 2020, China, India and Indonesia will all be in the top ten global markets for retail consumption demand.

In order to take advantage of this expanding middle class, international retailers—predominantly fast fashion brands—are entering and expanding in Asia Pacific at a rapid rate. Despite concerns over the slowdown in economic growth and retail sales, especially in China, there continues to be an increase in the number of new retailer entrants across the region with Hong Kong raking second for new market entrants.

Joe Lin, Executive Director, Retail Services, CBRE Hong Kong, said, “Hong Kong is a golden spot for retailers to enter and expand in the Asia market. With its highly concentrated shopping districts filled with quality shopping malls and stores, the territory offers a good platform for international brands. Mid-range brands are performing exceptionally well in Hong Kong also with the shifting preferences of mainland tourists. For consumers generally Hong Kong is a good place to shop, with its easily accessible transportation networks and the high service quality of salespersons also.”

Hong Kong, Beijing and Shanghai have seen the strongest flow of new market entrants looking to capitalize on the China growth story. Tokyo saw the strongest activity in 2013 and momentum has continued in 2014, particularly from luxury brands. In Southeast Asia, Singapore has been the main hotspot, whilst both Taipei and Seoul are among the most active markets globally for new retailer entrants.

Top target markets for new retailer entrants

Source: Retail Hotspots in Asia Pacific, CBRE Research, 2014

Activity to Continue in 2015, But Retailers More Cautious

Overall retailer demand in Asia Pacific is set to remain subdued heading into 2015 but activity and demand levels will diverge across different markets. Jonathan Hsu, Director, CBRE Research, Asia Pacific​, says, “Japan and Australia are expected to remain upbeat, whilst activity in India should pick up on the back of relaxation of foreign direct investment in single and multi-brand retail. China, Hong Kong and Singapore will stay relatively quiet due to softening domestic consumption, in addition to Chinese shoppers’ weaker appetite for luxury goods.”

Mr Hsu notes that international retailers tend to expand to secondary cities in the region after establishing their presence in capital or tier I cities. “Key emerging markets in Southeast Asia, such as Hanoi and Ho Chi Minh City in Vietnam and major cities in Indonesia, Malaysia and the Philippines, will be a strong area of focus due to the growing appetite for consumer goods and relaxation of foreign investment regulations next year. The construction of new high quality shopping center supply is providing more options for retailer expansion in these markets,” Mr Hsu adds.

In terms of retailer types, CBRE expects mass market brands to look towards highly populated markets—primarily China and India—for expansion in 2015. Retailers in the luxury sector will opt to focus on the mature markets of Japan, Singapore and Hong Kong, with China less of a priority due to the ongoing anti-corruption campaign. Bridge brands will concentrate on slightly more mature markets, including Japan and South Korea.

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Disclaimer:

Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.